Welcome everybody to the DCGI conference. Today's session is going to be about decentralized finance, DeFi, as we call it, challenges and opportunities. The DCGI conference is organized as part of the Digital Currency Global Initiative. Organized in collaboration with the International Telecommunication Union and the Future of Digital Currency Initiative at Stanford University. Myself, I'm the director of the Blockchain Certificate of Advanced Studies at the University of Geneva, and I lead the stablecoins, the DeFi, and NFT work stream of the DCGI. The DCGI has three main working groups: policy and governance, architecture, interoperability, and use cases, and security and assurance. Today we are going to talk about decentralized finance, the challenges and opportunities. We have a great list of speakers, experts in the domain. The first speaker will be Kai Gunter, Director of Chainalysis. Chainalysis is a major provider for analyzing blockchains, which are needed for decentralized finance. We will have the view of Romain Armengaud, Director of Regulatory Affairs Advocacy at Mastercard. We'll have Nadia Filali, Head of Blockchain and Crypto Assets Program at Caisse des Dépôts, which is a major public funding body in France. Finally, we have Lex Sokolin, Chief Crypto Economics Officer at ConsenSys, which is a very well-known company that started with Ethereum a good number of years ago. If you want to ask them questions, you can use either in Zoom, the Q&A tool where you can ask questions and the experts will answer them either directly in the tool or after when we talk together. You have also a link to an application, which is called the Pigeon, Pigeonhole. You can click on this link to also ask your questions, and then it will be also used for questions and answers. The first part, we'll have an introduction by each of the expert speakers. The first speaker is going to be Kai Gunter from Chainalysis. Kai, could you introduce a bit more yourself? Yeah, sure. Thanks for inviting me, and thanks for having me. My name is Kai. I'm leading the business efforts at Chainalysis, yeah, for the region Switzerland, Liechtenstein, and Austria. Talking to both financial institutions and public sector customers. As you probably know, if you heard about Chainalysis, we are closely co-working with law enforcement all over the globe and also with, yeah, private institutions such as banks and so on. I just want to highlight some of the opportunities and innovative applications that DeFi can bring to make financial services more efficient. First of all, as you are probably pretty much aware, DeFi can increase the accessibility, and this is really one huge opportunity as it can provide financial services to individuals who may have been excluded from traditional financial systems due to lack of credit history or identification or other reasons. This will be a massive game changer for, yeah, for poor countries or, yeah, people who didn't have access to financial services before. Also on the other hand side, DeFi will reduce costs as there will be no need for intermediaries, which for sure will lower the costs for the users overall. Another benefit I personally see, and this is also what we are helping our customers with at Chainalysis, is a greater transparency. With DeFi, all transactions are recorded on a public available blockchain. With that, this increases the transparency and also the trust in the financial system, which is a huge benefit. Then also we will have more efficient markets as decentralized exchanges can increase market liquidity and reduce spreads, making it easier for users to buy and sell assets. Also on the other hand side, there are already loads of new financial products, and we will definitely see this during the course of the year, that there are many, yeah, great ideas and projects going on. As decentralized lending, for example, or borrowing platforms, stablecoins, yield borrowing as, sorry, yield bearing assets, for example, which are already create financial products which haven't been there before. Also on the, yeah, processable side, DeFi can automate processes and reduce human errors therefore, which also will increase the efficiency. Last but not least, and this is also a topic where Chainalysis comes in and have a main focus on is a better risk management, as DeFi definitely can enable better risk management, as the smart contracts can be programmed to automatically execute actions based on predefined conditions. Yeah. This will help the overall ecosystem. Yeah. Just my few cents on the opportunities of DeFi. Thanks. Thanks. We'll go back to questions afterwards. The next speaker is Roman Abettner from Mastercard. He's more into the regulations. Please, Roman, give us an introduction to your view on this topic. Thanks. Yeah. Thank you very much, Jean-Marc. Also thanks for having me. I'm working actually in Mastercard's regulatory advocacy globally. We are of course watching DeFi developments over the last few years quite closely, also with a view of, you know, seeing how we might be able to include those in our future business activities. You know, our view is really at the moment it's a rather a mix of excitement, but also caution. As Kai already mentioned, DeFi certainly has a lot of potential. Just to mention, you know, cheaper, quicker transactions, easier access to financial transactions or services. Often as the main driver of this innovation is of course mentioned decentralization. The removal of traditional centralized intermediaries. You know, just from that perspective, we think that there should be actually a bit more analysis into decentralization aspects and the value propositions stemming from that, in terms of DeFi. You know, if you look at current DeFi applications and platforms, there's really a lot that drives innovation in these sort of packages. You have automation of processes, such as through smart contracts. You have, for example, tokenization of assets, which certainly brings a lot of value. Then of course you have very, a broad range of different decentralization models. You know, just speaking of the governance of DeFi applications for instance, we can really see up until now a very broad range of how decentralized or sometimes also centralized these models are. Yeah, as for example, if you look at, you know, who holds, if developers, for example, retain administrative keys, and therefore can, more or less by themselves rewrite smart contracts, that's actually then not so decentralized as we might think, and as the name DeFi often suggests. That's really something we need to, you know, have a closer look at, as this will be quite crucial also for the development of DeFi and its evolution and its overall potential. Yeah, having said that, we see a lot of opportunities, but, of course there's also a bit of caution. I think we've all, you know, heard and built about the various attacks that have happened, and that went unfortunately hand in hand also with the growth of DeFi. There was, yeah, quite a lot of fraudulent attacks. There was sometimes also technological errors in DeFi applications. Even state-supported hacking groups have been involved in carrying out hacks or fraud. For example, North Korea's Lazarus Group and, yeah, that eventually then also led to not just, you know, lots of losses for consumers, which is definitely a very negative aspect, but also to a certain convention of sanctions, perhaps. This is really something we would need to overcome to make DeFi overall grow safely and sustainably and to increase trust in the system. Yeah, speaking of which, I think also what we can see so far now is that KYC, AML protocols are, you know, not always very well, you know, practiced in DeFi applications. That's perhaps another area of caution where we see urgent needs of improvements. Yeah. I think from introductory statement, I just want to make sure that, yeah, we see this with mixed feelings. Last but not least actually, I wanted to add, but I will come back to that later, that if you discuss DeFi and its, and its potential, you really also have to have an eye on stable coins and the roles they play in this ecosystem. Up until now, stablecoins are really broadly used as a kind of substitute for fiat currencies in the DeFi space. Therefore, you know, risk factors are also closely interlinked. If we really want to help DeFi take off, and bring out the good innovation, then we also have to have, you know, proper stablecoin regulation of stablecoins in place. Yeah. Thanks. Thanks. Thanks, Roman, for your view. We have already published a technical report on stable coins actually, for, from the work we have done as part of the DCGI work stream on stable coins. It's a public report, so members can access it and I think also other public people interested in this topic. Next. Thanks, Roman. Next, we have Nadia Filali. As I said, head of blockchain and crypto assets program at Caisse des Dépôts. She has participated to push the ecosystem in France and the Caisse des Dépôts has also participated to invest in some of these innovative use cases. She's going to give us an introduction to the use cases that she has dealt with. Thanks. Thank you, Jean-Marc. Hi, everyone. Yeah. Caisse des Dépôts is a very old company. We are launched by Napoleon in 1814 or 1816. It's a very old company, and it's a public group. It's a financial public group, so it's something like a bank of development in France, but not working only in financing the regions, but also we have a part of asset management for us or for the government. We have also some subsidiaries in transportation like Transdev, in real estate, in insurance and many things. We are a large group, and as you said, Jean-Marc, we work on the state of blockchain and crypto asset to ecosystem in France. In the beginning with the line, with the consortia in in finance with banks and startups, we continue to work on that also by launching INATBA. INATBA, it's an association in based in Brussels that I have the chance to be the chair of the board from one year now. We are working in different subjects. As a really public financial institution, working on the subject of crypto asset and blockchain is not really easy. We began to work really practically on crypto asset by being a custodian in France for a big public institution. We have the status of what? Of French caps, the PSAN. We work also on the security token side, because for us, we think that the tokenization of financial assets is something that will exist in the future. Talking about DeFi, we think that there is different opportunities in the DeFi innovation. For example, concerning the loans or the access of the saving or financing the economy by different type of people. I don't know if you know, but we have only 6% of the French population who had security in France. It's less than people who had crypto asset. It's 10% on the crypto asset. Financing the economy by financing company through the security, I think it's really important. DeFi provides something more easier for the consumer to go to finance and companies. Also because not only because the access of DeFi, but also because you can finance smallest projects by half of security or things like this. It could be really an opportunity for the economy to go on that. The point is for the moment, for a large institution, financial institution, for like us, it's difficult to go on DeFi, not only because of the volatility, the volatility on crypto, the people know the point, but there is other constraints on DeFi. The first one is the identification of your counterparties and the compliance subject. Because for the moment, if you are a big bank or an institution like us, you are submitted to some rules and regulatory rules, and you need to do your KYC. You need to do your KYT here, because different. For the moment, it's not really secure on that point. We trust also because of the development of the SSI on the Self-Sovereign Identity and the. Perhaps with the European wallet, the e-wallet, perhaps this kind of constraint will be different in some years. Another point that it's really important, I think it's really linked with the conference, is that there is a point on the management of the payment. For the moment, we find some stable coins in the DeFi. We saw that there is some problem with some of them last in the summer. Perhaps that if we can use CBDC on DeFi, for example, could be more easier for institutional to go there and to manage some transaction in the DeFi. Perhaps another constraint, but it's only a constraint, is that for institution, for a super, for the banks and the TradFi, sorry, going on DeFi is something perhaps bizarre for people who are intermediaries on financial services to go on a system that decentralize the TradFi. I think there is also fear to go on this subject. As we sa w in the, in the human story of FinTech of and digital innovation, it's that it's better, it's a better issue to work with the people who are doing the innovation than working against this innovation. It was true for Open Banking, it was true for, so for other kinds of innovation. I think there is a way that make us work together, but we need to work also on the content really on compliance and this matter on the cash management and the volatility. Okay, thanks. We have already a number of questions. We'll ask the questions later. Thanks, Nadia, for this. You're welcome. Next we have Lex Sokolin from, ConsenSys, and so he's going to give us his view on this topic. Thanks, Lex. Sure. Thanks so much for having me. It's a pleasure to be with the group. I think lots of good points made already. My name is Lex. I'm at ConsenSys, where I've had a number of roles, from running crypto economics to previously running marketing and before that, running all of our FinTech products. Kind of prior in the adventure, I was in the FinTech space building out digital investing companies, and started my career at Lehman. So have the existential crisis of a failed financial institution under my belt, as well as the scar tissue of actually running a company and knowing what that feels like. I think that this is a really difficult topic without feeling the actual experience of having ever used a crypto wallet or ever invested in a DeFi protocol. It's hard for me to do a poll of the audience of, you know, how many of you have actually owned a stablecoin or staked something in a protocol. I think a lot of emotion and pushback and skepticism can be resolved by mere usage. If anything, I would just encourage people to go grab the MetaMask wallet and, you know, put EUR 100 to work to understand what's actually going on. As it gets to ConsenSys, we're a company focused on supporting and enabling Web3. We're not a financial company or a technology company. As Google relates to search on the Internet, we relate to the architecture underneath Web3 and everything that entails. We have two primary motions. The first motion is to help people use Web3, and I'll keep using that term, Web3. I'm happy to open that up. Web3 includes the usage of decentralized finance as well as the usage of other smart contracts based software that is written onto blockchains, that is executed on blockchains, and that has the attributes of economic scarcity and decentralization as core to their functioning. Anyway, the one thing we do is we help people use Web3 through MetaMask, which is a crypto wallet with about 30 million monthly average users. Lots of people are doing stuff. The second thing that we do is help developers build on Web3 so that there are things people can do. That means providing infrastructure, developer infrastructure. That means helping set up and run protocols, things like Quorum for JP Morgan or the Palm Network for NFT issuance, as well as contributing to the core Ethereum network. That's the motion, create the ecosystem and help people use the ecosystem. Both sides of the equation are open, meaning that there are plenty of other companies that make wallets, and there are plenty of other companies that provide developer tools and everything in between. That's the very biased context that I'm coming from. I think if you try to just create a cartoon story of what's happened, it's pretty straightforward, and I'll describe it in the way that I've transitioned into the industry and how I've self-persuaded about why this is important and interesting. You can now tell that I'm like Metaverse and it's too late for me. Maybe some of you are still safe on the Earth, but I'm in the fractal universe. It's too late. Okay. you know, if you think about the traditional financial services industry, you can think of it as an extension of the real economy, right? You have about 20% of GDP, give or take, in finance. If you have too much, we're over-financialized, too many derivatives, you know, shut the bankers down. If you have too little, it's a problem. People are underbanked. There's no access to finance or credit. Entrepreneurs suffer, right? There's some sort of magic finance as percent of economy number, which is anywhere between 10% and 20%. Without a real economy, you just have financial engineering. In our Wall Street world, the value chain starts with manufacturing financial products. That financial product is pushed through some sort of intermediation chain and distributed to individuals, right? You have large sales for the financial advisors, you have large bank branch footprints and so on. In the next wave recently, certainly there are many technology waves in the space. The next wave, in the FinTech wave, the Silicon Valley approach to building consumer first mobile products was applied to finance. All of a sudden you take all those bank branches, you take all those financial advisors, you take all of those digital officers, you cross them out and you fire them, and you replace them with owner and a website. Roughly speaking, that's what's happened. If it's not exactly what happened, but roughly speaking, the storefront of financial products has shifted to the phone and to the web. You see that with neobanks and digital advisors and digital lending companies and PayTech companies, you know, Venmo, Cash App, Revolut, Robinhood and so on. Fintech has given us digital distribution, but it's given us digital distribution of traditional products. We're still faxing and papering and scanning and doing human labor to manufacture those products. The next phase that already happened, it's already done, is manufacture finance in a way that's fundamentally different. This is one of the things that blockchain is good for. It's not the only thing, but it's one of the things. DeFi allows us to make any financial product, whether it's a payment or a banking product or a lending product or a Capital Markets product or a wealth management product or an insurance product, 'cause it's made of software, in a, let's say, computationally native way. Not in a way that's sort of glued together lots of different systems, but in a way that's native to a computing system that melts all this stuff together. DeFi has very real examples in pretty large distribution that we can have these financial products. It's also shown us that financial crises happen everywhere, and they look the same and have the same shape. So we shouldn't be surprised. So now we're in a place where we have both the manufacturing and the distribution of financial products digitally. The outstanding question for me and that I'm focused on is what is the point of finance when it's so freely available and how does it enhance the real world economy and Web3 economy? So at this stage, we're seeing a lot of development in the organization of labor, the organization of decentralized autonomous organizations, which are kind of small businesses in Web3 that are ending up using these Web3 financial systems instead of the traditional financial system because that's where people go and that's where they contribute. That's a very short version of a very long story. Hopefully you imagined it. I'm happy to open up any of these things via questions. Yes, thanks Lex for this introduction. Myself, I noted a few questions already. Let me ask a few questions to start with the question and answers. I remind the audience that they can use the Q&A tool on Zoom or the Pigeonhole, which is an application shared that you can use as well for question and answers. If we go back to Kai. Kai, so you talked about a good number of issues and also some opportunities. Could you summarize the challenges that you see regarding decentralized finance, DeFi? Yeah, sure. Yeah. Actually, I mean, still with all the enthusiasm and opportunity which DeFi brings, there are still some challenges. Some of them have been already mentioned by Roman and the other panelists. Maybe the major ones from my perspective are the lack of regulation, basically. Since DeFi is relatively new and also rapidly evolving, there's currently, from my point of view, a lack of clear regulatory guidance for many of the activities which are taking place in the DeFi space. This also on the other hand can create uncertainty for users and make it difficult for projects to comply with existing laws and regulations. Also, maybe a major issue could be or is, however you see this, the smart contract security. As you know, DeFi relies heavily on smart contracts, which are self-executing contracts with the terms of the agreement between buyer and seller being directly written into lines of code. However, smart contracts have been known to have bugs and vulnerabilities, which can, at the end of the day, result in the loss of funds for users, which is yeah, would be a main issue for users and the acceptance of DeFi protocols. Also, more from an ecosystem perspective, the liquidity is also another topic I thought about, as many DeFi projects currently have low trading volume and liquidity, and this can make it difficult for users to buy or sell assets at fair prices. Which then also can make it more difficult for projects to attract new users and grow the ecosystem. I think these are the main ones. I just thought about, yeah, some of the challenges we might face. Okay. Yes. Thanks. Of course you underline, and also underline also a number of hacks and issues that happened recently, where lots of people lost a big amount of money. We know that Chainalysis, you know, as a tool to track, you know, what happens on the blockchain. Of course, it has been used to try to track the bad guys and what happened. Could you tell us a bit more, you know, in the future, how you see the role of Chainalysis? Do you have new services as well? Extended features? Yeah, sure. I mean, this, from our perspective for sure, and unbiased here, blockchain analysis will play a key part in the future, also within DeFi, and we are already addressing them with some of our products. If you think about smart contract transactions or smart contract-based transactions, like NFT transfers or so. I mean, we are already, and this is kind of a no-brainer. We are already aware of every blockchain native transaction. Yeah, with the likes of smart contracts and NFT transfers or other DeFi protocols, it's a little bit more difficult and more complex as the timeline where a transaction is happening is one of the key factors where you would look at to understand how often a smart contract has been triggered, how often an NFT has been traded, and so on, and in which timely manner. We are already addressing some of these, yeah, questions which also are coming from police, from law enforcement, when they are tracking down, large NFT, yeah, related crime cases and so on. I don't know if I mean, one of our products is Storyline to mention here, which actually absolutely addresses this, these questions and will play a key role in the investigation and compliance in the DeFi space. Yeah. All right. Thanks. Yeah, talking about so moving towards compliance in the decentralized finance space. Nadia, you underline that, maybe like what you said, that you think that Central Bank digital currencies, which are detailed in other sessions and where the DCGI also work on, could coexist with decentralized finance. I mean, you are having CBDCs in decentralized finance. Could you try to explain us a bit more how it could work? Nadia? Sorry, I was unmuted as well. Sorry. I saw that there is a question on that, and we saw that there is the subject on Terra Luna this year. Really if we want to try to work on the issue to have something that it's more stable in our transaction and in the cash, I will say the cash leg because I'm working a lot on security. On the cash part, working on algorithmic stablecoin, I think it's not a good issue, and there is no guarantee and stability. Could we use a stablecoin issued by some private company that need to be a little bit huge to be to have the great guarantee on fiat money. After saying that, I think that there is two possibilities. Using CBDCs or using what we try to work on in Caisse des Dépôts. It's the, it's a commercial, a commercial bank currency. We work, for example, on co-commercial interbank digital currency on that because that we know that the guarantees and the token will be based on For example, if for sure, if it's the Central Bank, also, if it's a combination of big banks or 1 big institution. Working on that could be interesting because, as we said that there is problem there is some DeFi on the DeFi, if I could say it like this. Because DeFi is too risky and too difficult for many financial institutions and because of the lack of identity solution or anti-money laundering and etcetera. If you can use... I said if you can, because I don't know if the Central Bank will agree to use their CBDC in the DeFi. It's another point. If you can use CBDC or commercial bank digital currency in the DeFi, you will first legitimize, I think the DeFi more than today for some corporate actors or asset manager or banks, because you will limit one of the essential risk there. You can perhaps try to make more interoperability between the different system. I think that one of the point that, to focus on is it's not only the interoperability between the different blockchain that you can use or layer that you can use, but also the interoperability between TradFi and DeFi. Perhaps that could be a good bridge for that. Another point is that the... If we want to make move some consumers or some investors from TradFi to DeFi, their capacity to invest or their capacity of saving will be the same. It will be some kind of arbitrage between the two. We need to have to pass from one world to the other world really easily, I think. I don't know if you agree with that, Mr. Jean-Marc. I said the same thing. Yeah. I mean, that's interesting also. I think maybe the first CBDC or the first country, which will try to bridge, you know, traditional finance or at least its Central Bank currency with DeFi could get an edge. Mm-hmm. compared to other currencies. I mean, in a, in a world where there is no not only one major currency. Mm-hmm. Maybe so, you know, give an advantage to the first mover. Yes. Then, if, you know, CBDC are used in DeFi, financial institutions would be involved. In DeFi, we also have many times governance, decentralized governance. Mm-hmm. Where, there is an entity, a type of entity which is not recognized as a legal entity in many countries, but that we call the Decentralized Autonomous Organization, DAO. Would you think then in this case that the financial institution would also at some stage be okay to deal and to interact with DAO? No. I think for the moment it's going to be really complicated, because one of the central points on all the subject that we talk about around crypto, DeFi, and blockchain, it's the point of decentralization, and it's the point of governance. Really for me, I'm living in France and we know what is centralization. We know really what is centralization. There's a big disruption here for people who are deciding things and to accept that we can work in the world of decentralization. Because if you are talking about DAOs, you will ask the point of the governance. We will ask the point of the responsibility. The first thing that we saw on DAOs was in 2016, we all know what happened when someone take EUR 50 million out of the system. Hopefully the system repair the points. There is a question of security of the code here sometimes. There is a question on how you can define who is responsible of the entity of the DAO, who is the issuer, who is the investor, and da da da. I think for the moment, DeFi is a DeFi for TradFi finance, but using DAOs, I think the second level. It's complicated. Okay. could have... We could have also in advantages on financing economy on that point. We saw that for example, in United States, in DAO to make some first of financing some new companies. It's not really detective, negative on that because they rectify the point on the security point always. Mm-hmm. I think it's something that we need to discuss and look at it, but I think it's really, it's really new for the moment. For example, in INATBA Finance Working Group, we are working with ADGM in Abu Dhabi because they are more open on the subject of DAOs and DeFi than the European Commission. Mm-hmm. We decentralized Okay. Yeah, yeah. action on that. Okay. Yes, maybe one day, Caisse d'Epargne is in addition to have shares in an entity may have some governance, shares. I mean, probably. I don't know. For now it could be difficult. We know that we don't have shareholder in Caisse d'Epargne, so we are in some kind of decentralization. Okay. The view of the parliament on this. Yeah. If we talk about so this regulation. Thanks. You're welcome. Roman, so from the regulatory affairs of Mastercard, how would you so see this regulation of DeFi? Yeah. Yeah, sorry. No, I think I can agree with a lot that has been said by Kai and Nadia already in this respect. From, from a regulatory perspective, DeFi is so far really just very hard to capture. There's a broad range of activities and different governance models, so it's just very hard to define DeFi. Then, yeah, that's also why regulators and policymakers are obviously struggling so far to, you know, detect which rules are actually applicable and who should be the responsible entities to, yeah, to be imposed on them. And from our perspective, that is certainly not ideal. Regulatory uncertainty can add another, you know, area of risk to the DeFi ecosystem. Just in terms of trust, and that's, I think, what you ultimately need from all the users, it would be good to know, and also for supervisors, of course, you know, what rules apply, especially if something, for example, goes wrong. Which fraud or dispute mechanisms are there if, you know, money is lost or, you know, other things happen? Yeah, from my perspective, therefore it's important but also very difficult to, you know, create a regulatory framework that really looks at the distinct features of DeFi and also tries to, you know, achieve the same regulatory outcome, not necessarily the same regulatory rules for DeFi players. In other words, of course it's obvious that DeFi uses new technologies and new governance models. Sometimes if you just look at the risks, they're actually quite similar to traditional financial services. If you look at lending, broker services, exchange services, there's similar risks, just it might not be appropriate to use and apply the same rules for those kind of risks. Just from a principle-based perspective, I think we need a regulatory framework that adjusts the rules as we currently have them. The hard thing probably with regulation of DeFi is, however, who is the responsible party? Nadia was already mentioning that. We have a lot of governance models and there's just not this one entity where you can anchor regulation to. However, we believe that there's always, I mean, certain parties or one party that is able to manage the risk, stemming from DeFi. Of course, that cannot be, you know, defined because it will always be different. In general, regulation should be really, you know, anchored with those players, since they are the ones that have the input on those systems and since they are the ones that also reap at least most of the commercial benefits. Yeah, it will be critical to, actually... and that has been floated by some regulators and policymakers, not to impose, regulatory obligations for DeFi and for risks stemming from DeFi on incumbent players, just maybe because they are already regulated and they're here and convenient. I think we need to find a way to, yeah, tailor-make regulation and tackle, you know, those players that really create the risk and have an input on addressing risk as well. Yeah, so much I think about the, the concept itself. When it comes to substance of regulation, given, you know, attacks and fraud and, you know, negative things that we've seen in the DeFi space, it would certainly be priority to start with, you know, clear and high standards of security and compliance for DeFi applications and platforms. Strong AML, KYC procedures, also, sanctions compliance would be very important. Of course, as I mentioned before, you really need to have procedures and rules in place on what happens if something goes wrong, if there's fraud, for example, if there's, you know, disputed transactions. I think there we can really look also at traditional finance and, in all of these cases you have procedures where people, you know what to do, where you can trust in, and where there is, you know, a mechanism to solve issues. With DeFi, I think that's very different at the moment and, yeah, certainly area to look into. I think... and I'll stop there. I think what can help, and I think Kai mentioned it as well, is, you know, RegTech really helping DeFi players to increase compliance. With Mastercard, for instance, we also have a crypto compliance arm called CipherTrace. They've developed a program which is called DeFi compliance. That's actually software that helps you prevent transactions to sanctioned addresses. That's under integrating real-time compliance data into a smart contract. That's just one way of, you know, increasing compliance efforts on top of regulation. Regulation at some point will perhaps be needed, but RegTech and similar solutions can also increase, you know, benefits for DeFi a lot. Okay. Thanks, Roman. My last questions for Lex. Actually, we've talked a lot about the issues on the regulation. Lex, could you try to summarize, you know, which centralized finance problems are solved by decentralized finance? What are actually the opportunities? We've talked a lot about the issues, but what are the opportunities then? Thanks for the question. It's an impossible question to answer. It's like, we have books, what's the point of websites? I think the first answer is that, the shape of financial services is pretty repeatable through history. Like, you don't have to innovate, a new answer as to what people need. Like, people need to save their money. They need to earn an interest rate, because they wanna save. They wanna borrow money to start a business or, you know, have access to credit so that they can do, some sort of risk transfer. They need to retire and save for the future. I think it's not the right line of thinking to think about, feature comparison. Meaning my widget does, you know, 100 units of output. Can I find a widget that does 120 units output, and therefore, I have done quote-unquote digital transformation? I think you have to kind of start from a different place, which is where is DeFi being used? By whom? And what is the substrate in which it's being used? The place where it's being used is on computational blockchains. It's used on Ethereum and various parts of Web3 and so on. What do people do in these places? They live their digital lives. You know, in the same way that people live lives in the physical world, we all live in the digital world as well. We have things like social capital. We have things like belonging, identity. We also have things like labor, working on things that you like, or working for money because you need to earn money. All these things are as true in our traditional economy as it is in the Web3 economy. In the Web3 economy, your infrastructure for getting paid, how money transfers to you, your infrastructure for how you save or how you invest or how you borrow, it doesn't ramp off into the bank. It just doesn't. It's inconvenient. It's like, let's say you get into an Uber, you have cash in your wallet. The Uber driver will kick you out because you have money of the wrong kind. You need to pay the Uber driver with the Uber app, which uses a digital payment method which has been built for Uber. Uber is a Web2 company, it's built for the mobile phone. The only payments that Uber is going to accept are the payments integrated into the mobile phone rails. Your cash is not acceptable in an Uber. Similarly, in the Web3 environment, where people are building digital objects that anchor to chains, where they're doing labor, in exchange and where, you know, they're employed by DAOs or they are managing money as part of a DAO, or they're creating art and purchasing that or exchanging that, or they're participating in markets, all of that is economic activity, and it needs banking services. The banking services are there. They're just called DeFi. That's where they're built. That's the sort of closed loop network of the Web3 economy and financial services that serve it. The question is, there's two questions. The first is how do things come in and out of there, right? In the case of Uber that I've described, that cash that you earn, you know, theoretically it does go into a bank, and then you can load your Apple Pay, and then you can connect your Apple Pay into the mobile app, right? There's an on-ramp for fiat value into Web2. Similarly, there are on-ramps and off-ramps into this particular closed loop environment. You have payments on-ramps, you have Capital Markets on-ramps, and, you know, those are valuable and growing interfaces and infrastructure. You see that both from large traditional financial institutions that are getting into Capital Markets through custody, digital asset Capital Markets through custody. Then that in turn, once it floats into the Web3 ecosystem can be put to work in DeFi protocols. Similarly, there's kind of backwards packaging, right? If a financial institution thinks that tokens are to be packaged and distributed back in traditional wrappers, whether those are funds or trusts or, you know, other wrappers, you know, that happens as well. That's kind of one question about the border and the integration and the growing between them. Then I think sort of the third question, which again to me isn't all that engaging, is like, well, which system is more effective at X? Which is better at performing on some particular arbitrary characteristic? You know, I think it's very easy to point to various blockchain-powered solutions that aren't encumbered by traditional system integrations. You know, integrations into Fiserv or Temenos or the card networks or anything like that. In those cases, it's very easy to say that the Web3 systems are meaningfully, I mean, endlessly more economic. At the same time, it's also easy to tell the story that once you start to plug in these blockchain-based systems into the technology stack of traditional financial institutions who have, you know, 50 or 100 things working together, adding the 51st thing isn't going to reduce your cost. I think the cost improvement story is a bit tenuous. It's a hard one to pull out value and to use it to be persuasive. Once you understand that that's not the real story, the real story is about economic activity, where to point that economic activity, and then what are the tools that they're using for financial products, where those financial products are exactly the same as they've always been, just built in a different way on different, on different value chains, then I think you start to get to interesting insights. Okay, thanks. Thanks for your input. We have a number of questions in the Pigeonhole, actually. The first one, we have already partially answered it, which was about, you know, the issue of the collapse of Terra Luna and, you know, what would, what were the benefits of it. I thought the major issue for many people was. We underline that regulation, you know, maybe was going to be maybe put in than before after such a big issue. Input from the among you for this question? Besides regulation, I mean, what You know, faster regulation, what would be the benefits of such a big collapse? Are we? Yes. Romain, next part. Sorry. Are we talking about the Terra Luna-? Yes. The reasons for Terra Luna or like the benefits of seeing it implode? What's the... Yeah, I mean, the first question, you know, you know, the Terra Luna collapse in the context of DeFi and the purported benefits. That question is phrased a little bit strangely, right? There are no benefits to watching people lose $40 billion. I think there may be lessons, and I think there may be takeaways. This is a really hairy topic, and it's super important to be extremely careful about kinda conflating different things I see people doing this all the time 'cause it's convenient and it's nice and it feels good. But the things to pull apart are Terra Luna was a particular protocol with a particular stablecoin design that was a crypto native failure. Meaning it was a blockchain protocol that had an algorithmically designed stablecoin, which also had a mechanism meant to attract people that was recursive, and it was self-referential, and it attracted people exponentially, and then when it was attacked, it collapsed exponentially. If we give it the benefit of the doubt, which you may or may not, you know, in the negative case, it was a grift and the whole thing was a scam and a fraud, and that's easy to think about. In the positive case, we can say that perhaps there was like an honest mistake in the engineering of the mechanisms, where the hypothesis was that the stablecoin would be backed by the gas token of the underlying blockchain protocol. We know those are valuable from Ethereum and Bitcoin. We've seen, you know, MakerDAO, for example, use Ethereum as collateral. You know, the question is, does the bundling of those things work or not? The answer that we've seen play out in the economic experiment is that it does not work because it can be attacked and it's recursive. That's the nicest thing you can say about that sort of substantive collapse. Just because something fails doesn't mean that the category fails. That's like a mental mistake, right? Just because a mortgage-backed security is poorly priced doesn't mean that there shouldn't be or aren't mortgage-backed securities. Just because internet companies were expensive and Pets.com failed doesn't mean there weren't gonna be internet companies. You can't draw the conclusion that because Terra Luna was poorly designed, all crypto economic designs are poor. That's kinda number one. The second lesson that we've learned is that Terra Luna collapse created a black hole, a large Capital Markets loss. The traditional broker-dealers, the centralized exchanges, and I don't mean centralized as a negative word, it's just a description of the traditionally shaped companies like FTX, like DCG, like Three Arrows Capital, like Celsius, like Voyager. Voyager publicly traded. Things that look like a broker-dealer or an exchange that were very, very familiar to any regulator, had exposure to this asset in the same way that Lehman had exposure to mortgage-backed securities. It was an absolutely, you know, horrible controls in those companies. Lots of compliance failures. You know, in the best case, naive performance. In the worst case, outright fraud. There was a financial you know, this black hole spread because of borrowing between all of the Capital Markets desks, and there was hidden leverage that blew everybody up in a financial liquidation cascade that looked very much like 2008. If we do talk about regulation, the financial players that are trying to intermediate access to crypto. Brokers, whether they trade in crypto or whether they trade in some other asset, doesn't really matter. We should have the same controls around them. But I think as it relates to the technology and the architecture. We don't have as easy a conclusion. I think we have to be very careful about conflating the two things together. Okay, thanks for your input. The second question, with many votes is about the intermediaries in the traditional finance. The, you know, traditional finance, they might provide, you know, another layer of accountability, verification, in decentralized finance. There is a question, you know, what would the decentralized parties are not present. There's a quote, intermediaries, they notify, you know, the people who believe in DeFi, thinks that intermediaries in the traditional finance just take rents or take some fees in between. They provide also according to the person who wrote the question, they provide also some other benefits like accountability verification. Anybody wants to answer anything about that? Yes, Nadia. I think there is something that is, we have a lot of intermediary, not traditional one. In a world where there is possibility of profits, there is always intermediaries. I think the way that some people think that all will totally decentralize without any intermediaries or any people who are trying to have some rents there, it's not true. What we are looking in the economy of the DeFi, even in the DAO, that there is always someone here to have a rent. The DeFi is not really a decentralized form. You cannot. Some people can try to share the DeFi without intermediaries, but it's not so true. The traditional intermediaries and the constraint that we have when we are in the traditional finance that we have, I think in finance or like in crypto, it's that you provide high accountability and verification, and you provide security, you provide currency and AML on what you are doing and between the people who are transacting here. Mm-hmm. For the moment, if the system don't know how to verify completely their identities and to provide this kind of security, we will always have intermediaries. Okay, yes. Also Not the first question, but the fourth question is about, you know, smart contracts and should they be verified. Some people in the domain, you know, say that you shouldn't trust, you should verify. That's true for people who don't know the technology. It's very difficult to verify smart contracts. A question about CBDC, the third one. Can CBDCs be used in the Metaverse? You know, first question is, you know, what is definition of the Metaverse? It could be, you know, the real world augmented with digital data. If you mean that, you know, like a CBDC as a crypto, as we said before, CBDCs are not used in DeFi so far because there is no retail CBDC used in the system so far. If at some stage they are used, you know, if they are used in decentralized finance, of course, they could be used in the Metaverse because in the Metaverse as we understand it as for example, a virtual world where you have some ownership of digital assets, and these digital assets are maybe Non-Fungible Tokens, very close to cryptocurrencies, so they can be protected by the same crypto wallet. Yes, I mean, at this stage if there's a CBDC in DeFi, yes, in the Metaverse I think it could be used. Nadia, do you want to talk about, you know? It's totally different of my intro, so I know it's always original. For example, the Central Bank of Morocco is working on a project to launch a CBDC. As an answer of the minister of finance who asked them to work on that. I know they are working a lot on this subject. Tunisia work on the subject more in the Central Bank issue also. And for others, I don't know. Because they do collaborate with the others quite a bit, but I don't know their project. Okay, thanks for your answer. We are close to the end of the session. We had a question on, you know, what is a reference architecture DeFi? Actually this is one of the new reports we are working on as part of the work stream. Anybody who has some knowledge can join the DCGI and join us to give an answer to this question. Maybe in the next conference we will have a more detailed answer, which is actually Will take a lot of time, I think, to detail, because of course, the architecture is not so simple. Thanks to all the speakers for your input. It was very insightful. Today it's the conference, this history is not finished. At 4:00 P.M. we will have another session, more on details on Proof of Reserve, which will be presented by Chainlink, a company providing oracles in decentralized finance. We'll discuss this question of, you know, are the reserves of stablecoins real or there is not enough reserve. Also Proof of Liabilities will be discussed. Another detailed session will be on the signed Non-Fungible Tokens. Also a question of trustworthiness of NFTs, if they are trustworthy or not. At 4:00 P.M., so there is a short break. I thanks again all the speakers. Thanks for the questions by the audience. See you next time. At the next DC3 conference, and come back also for at 4:00 P.M. for the next session. Thank you, Jean-Marc. Thank you.